US stocks tumble as investors grow defensive

Stocks tumbled today for the third straight session as investors, increasingly adopting a defensive strategy, bailed out of technology and other higher-risk shares.

The Dow Jones industrial average shed 160 points and other major indexes also dropped sharply.

Investors were trying to collect profits ahead of a correction – a pullback in stock prices in response to the nearly year-long market rally- – but may have helped fuel the correction instead.

“This is the third day in a row of some pretty heavy-duty rotation out of the cyclical stuff into the defensive stuff,” said Scott Wren, equity strategist for AG Edwards & Sons.

“It’s like a steamroller effect, with a little selling early on, then more and more as anticipation of a correction set in and people decided to lock in some of these profits.”

The Dow Jones industrial average plunged 160.07, or 1.5%, to 10,296.89, its lowest close since Dec. 19. Since Friday, the Dow has dropped 298.66, or 2.8%, and swung to a loss for all of 2004 for the first time.

The broader gauges also fell considerably. On the fourth anniversary of the Nasdaq composite’s all-time high of 5,048.62, the tech-heavy index was down 31.01, or 1.6%, at 1,964.15. That is a loss of 83.48, or 4.1%, for the week so far, and the index’s lowest close since December 22.

The Standard & Poor’s 500 index lost 16.67, or 1.5%, to 1,123.91, its lowest since January 13.

Adding to the ambivalence, many traders were looking ahead to the government’s weekly report on unemployment claims, due tomorrow, and more congressional testimony later in the day from Federal Reserve Chairman Alan Greenspan.

“The market has definitely hit a point where it’s weighing valuations against the changing tide of monetary policy,” said Kevin Caron, market strategist with Ryan, Beck & Co.

“We’re also looking at recent economic data that has been mixed and disappointing to some … and that’s why the market is stalling here.”

An upbeat announcement by Procter & Gamble kept blue chips from suffering a deeper slide, but it was not enough to rally investors. P&G, the Dow’s most expensive stock, surged $3.04 to $105.53 after it raised its earnings forecast for the quarter and the year.

The maker of Pampers nappies, Crest toothpaste and Mr Clean also approved a 2-for-1 stock split and raised its annual dividend.

On the Nasdaq, Sun Microsystems gained 2c to $4.35, rebounding from steep declines following downgrades from several brokerage firms. Analysts have questioned the long-term outlook for the computer-systems maker’s Unix business.

EchoStar Communications Corp was down 16c at $34.12 after saying it was working to resolve a fee dispute with Viacom that has darkened several channels for its nine million satellite TV customers.

Dish Network owner EchoStar pulled CBS programs and Viacom’s cable channels – including MTV, VH1 and Nickelodeon - in more than a dozen US cities this week. Viacom was down 98c at $38.24.

Decliners outnumbered advancing issues 3 to 1 on the New York Stock Exchange. Volume was light.

The Russell 2000 index, which tracks smaller company stocks, was down 10.94, or 1.9%, at 575.01.